The political and legal waters for Centerra Gold's Kumtor project have been muddied somewhat as the Kyrgyz Parliament failed to meet a May 29th deadline to ratify a revised Kumtor agreement entered into by Centerra and Cameco and the Kyrgyz government on  August 30, 2007.

Meanwhile, the Kyrgyz Republic's Supreme Court stepped in where lower courts apparently failed to tread, ruling that the Kumtor mine can keep operating although exploration must be halted until court proceedings initiated by the vice-speaker of the Parliament can be resolved.

As a result of the aforementioned developments, an increasingly frustrated Centerra has resumed international arbitration which is dispute resolution mechanism provided by the current Kumtor operating agreement.

A new, revised Kumtor agreement was scheduled to be ratified by the Parliament on May 29th. However, the deadline came and went as members of Parliament raised different national taxation and budget concerns which may depend on funding and taxes from Kumtor gold mine operations. The Vice-Speaker of the Parliament told reporters last month that he would withdraw his court proceedings once the revised agreement was approved.

John Pearson, Director, Investors Relations for Centerra Gold, told Mineweb Monday that the Toronto-based company has received no communication from the current Kyrgyz Prime Minister who had originally suggested that parliament would adopt the revised agreement by May 29th.

The Supreme Court got involved after lower courts regularly postponed the Vice-Speaker's claims, forcing him to seek relief from the high court. The justices ordered lower courts to hear the case, but issued an order pending resolution of the claims before the lower court. The government's 2003 decree approving the restructuring of the Kumtor project has been suspended. The Concession Agreement giving Kumtor's right to explore and develop the main deposit within the Kumtor concession has also been suspended, along with the exploration license covering all of the Kumtor deposits. Activity on the Southwest and Sarytor licenses-now undergoing exploration drilling by two rigs was halted.

The high court, however, decided to allow all Kumtor mining operations taking place in the concession area to continue uninterrupted-a wise judicial move considering Kumtor provides $30 million in annual tax revenues to the Kyrgyz economy, or 10% of Kyrgyzstan's Gross Domestic Product.

Had parliament approved the new Kumtor agreement, the country's shareholding in Kumtor would have increased from 15.7% to 29.4%, Pearson told Mineweb Monday.  Initially the Kyrgyz state owned two-thirds of the project, which dwindled in 2004 when Centerra Gold was created by parent company Cameco. Shortly after the IPO, the Kyrgyz government liquidated 7.5 million shares of its holdings, generating Cdn$116.25 million for the government.

However, some legislators contended that the Kyrgyz government did not receive fair value for the state's share in Kumtor under the Centerra reorganization.

By December 2006, Centerra agreed to pay an increased high-altitude wage bonus after a strike. However, in early 2007 the Kyrgyz government and parliament discussed the possibility of nationalizing Kumtor. The previous Kyrgyz President and Prime Minister were accused of striking a bad deal that poorly represented Kyrgyzstan's interests.

Eventually the talk of nationalization diminished as the government realized it was not in a position to buy out Centerra and manage a large gold mine.

Centerra sought arbitration in 2007 to discuss the high altitude tax and a land tax imposed by the Kyrgyz Government. The Kyrgyz government responded with a proposal to increase its Kumtor stake to 31% and introduce a simplified tax structure.

Pearson told Mineweb that Centerra believes Kumtor continues to operate under its existing 2003 Investment Agreement, which can't be changed by a court, but has to be revised through international arbitration. In the wake of recent events, Centerra is advocating the use of international arbitration to settle the taxation and other financial issues involving Kumtor.

Centerra may have also found an ally in the State Agency on Geology and Mineral Resources Management, which has appealed the recent Supreme Court ruling based on the Vice-Speaker's court case. Ironically, Centerra has received yet to receive any notice of the high court proceedings.

Pearson estimated that 4.9 million proven and probable ounces of reserves are at Kumtor, which plans to mine between 580,000 to 620,000 ounces of gold this year.